Towards a post-American world

Budget wrangle a proxy for falling influence

by Meghnad Desai in London

Fri 18 Oct 2013

The financial markets went to the brink. And then the Republicans (as everyone thought or hoped they would) blinked. But there’s more going on than the temporarily-broken logjam over the US government shutdown and threatened debt default. Last-minute one-upmanship in Washington is a proxy for something bigger. We’re witnessing the dawn of a multipolar world in which the US is manifestly in decline.

Many would welcome this. But a world without a hegemon will be chaotic. This was the case between the two world wars with Britain receding from its prime position and America unwilling to take on the burden. This time around, China is the most likely new hegemon, but is reluctant to take on the role. Analogies are never exact but we now face several unsettled decades while the new elements of a changing world, where America is no longer dominant, fit into place.

Empires decline in different ways. Some collapse because of wartime defeat, as happened with the Austro-Hungarian, Ottoman and the Czarist empires at the end of the First World War. After the Second World War, the Maritime empires – Dutch, British and French – fell apart, taking years in some cases.

America was never a formal empire but still a great – not to say the greatest – power in history. The decline of America has been under discussion for 40 years. This time however America’s ability to intervene abroad – as we have seen over Syria – is being limited by a mixture of fatigue and incapacity. And, as the imbroglio over the US Treasury debt has shown, we see a breakdown of consensus sufficiently serious that the fiscal soundness of the American state is at stake.

In the past, the usual stand-offs between the US president and congress have resulted in short stops to the US economy. But this time has been different. First, the deadline over the budget ran into the deadline over the debt ceiling; merely postponing the next set of wrangling has not resolved the impasse. Second, the Republican Party is divided and there is a diehard minority – the Tea Party ideologues – for whom there is no price large enough to pay for getting their way.

If the Republicans are diehard, the president also has no incentive to compromise. He does not face re-election. If he had conceded over the budgetary dispute, the rest of his term would have been a disaster as he would have been open to continuing blackmail. His hope was to make the Republicans take the blame until they relented. This would help the Democrats in the 2014 elections. Perhaps they may capture both Houses. That is the prize Obama is waiting for. Then his final two years can be fruitful.

The anger and the vehemence of the Tea Party people can be explained. Average US wages have been under downward pressure in the 40 years since the 1973 oil shock, yet profits have forged ahead. With manufacturing shrunken and new jobs requiring college degrees, the semi-skilled manual worker has lost out.

In terms of expectations, the white working class has lost out the most. They resent it. They don’t blame the market or the Big Capitalists. Their ideological roots are in free-market capitalism. They blame the government: their natural enemy. While the black and Hispanic working class expect the government to be their friend in need, the white working class does not.

The Tea Party congressmen demand balanced budgets and a cut in debt. They do not remember, or, if they did, they do not blame the Republican presidents – Reagan, Bush Senior and Bush Junior – who were profligate spenders and gave away tax cuts to the rich and pursued adventures abroad. Clinton balanced the budget in the last years of his presidency, but apart from that, the US budget has not been in balance since Eisenhower was in the White House.

The economic anger of the Tea Party against Obama is not just against Big Government; it also reflects, it has to be said, a certain amount of racist distaste towards a mixed-race president (recall the controversy over his birth certificate).

Whatever the causes, it has undeniable results. The American age is on the way out.

Lord (Meghnad) Desai, Chairman of the OMFIF Advisory Board, is Emeritus Professor of Economics at the London School of Economics and Political Science.